AI debt and French bonds hit credit stress as Nasdaq tumbles 2.5%

According to CNBC’s analysis of FactSet data, five-year credit default swap spreads widened for CoreWeave, Oracle and SoftBank Group, as well as for France and Italy. Higher CDS spreads mean more expensive default protection and can signal greater concern about a borrower’s creditworthiness. CoreWeave’s five-year spread reached 1,065.84 basis points on Oct. 21, while Oracle’s rose to 308.25 basis points from 141 on Jan. 2 and SoftBank’s stood near a four-year high of 432 basis points on Oct. 20, up from 284 on Jan. 5. S&P downgraded Oracle’s debt in July to the lowest investment-grade level, citing credit risk from its expanding infrastructure business. SoftBank is a major AI investor with a large stake in OpenAI and an $87 billion commitment for data centers in France.

The selloff in AI-related bonds has raised the cost of capital for companies funding data-center and cloud expansion. CNBC’s Investing Club said the issue gained more attention last Monday when Broadcom CEO Hock Tan warned that a capital crunch could become AI’s next bottleneck, and then showed up in CoreWeave’s bonds selling off, making it harder for the neocloud to raise new debt. Nvidia CEO Jensen Huang told CNBC on Thursday that neocloud demand is “off the charts,” but warned of a “scarcity of capital.” “The demand of the capital is much greater than the availability of the capital,” he said, adding that “that’s going to get solved.”

Meta Platforms added to the unease. Its Wednesday earnings were overshadowed by free cash flow turning negative for the first time since its 2012 IPO and an SEC filing that said its long-term forecast could require raising “hundreds of billions of dollars over a period of several years beginning as early as fall 2026.” The filing also cited an “increasingly challenging environment for raising capital,” and Meta shares fell 7.5% on Thursday. CNBC’s Investing Club said the filing described a special committee reviewing Class C common stock, a structure intended to let Meta raise funds without diluting CEO Mark Zuckerberg’s voting power, and named Alphabet, SpaceX, Anthropic and OpenAI among companies that have recently raised capital for AI growth. The Investing Club said the disclosure underscored a race among AI companies to secure financing before competitors do.

France is under parallel pressure. Its five-year CDS spread reached 89.8 basis points on Oct. 21, up from 29.74 on Jan. 2, according to CNBC’s analysis, moving above Italy’s 67.1 basis points on Oct. 22, which rose from 28.33. Germany’s spread also increased, but remained much lower at 12.15 basis points on Oct. 22, compared with 7.47 at the start of the period. France is not in a full-fledged debt crisis, CNBC reported, but its budget uncertainty and debt burden have become a focus, raising concerns the risk could spill over to other countries in Europe. Macquarie Group global FX and rates strategist Thierry Wizman told CNBC that the key drivers were France’s large sovereign debt burden, at 120% of GDP, and the inability to reduce the deficit; German government debt is 65% of GDP. FedWatch Advisors CIO and founder Ben Emons wrote on his “French Neoclouds” Substack post that markets “may no longer want to underwrite massive capex, heavy leverage, and uncertain future cash flows,” and that the same shift was widening French sovereign spreads.

Investors are also watching the spread between French and German bonds, a European benchmark of creditworthiness, which CNBC said surged to 1.6 percentage points. France’s 10-year bond yield topped 5% for the first time since 2002. While wide, the Franco-German spread remains far below the gaps seen during the early-2010s eurozone debt crisis. Recent mass protests and rioting in France have heightened market concerns, and Moody’s is scheduled to review France’s Aa3 sovereign rating, which carries a negative outlook, on Oct. 23. The review comes as political divisions complicate efforts to repair the country’s public finances.

S&P Global warned on Oct. 19 that major cloud providers may have more AI-linked debt exposure than publicly recognized. In broader markets, the 10-year Treasury yield dipped below 5% for the first time since Sept. 23 as investors sought safety, helping high-dividend stocks and rate-sensitive groups outperform while the Dow Jones Industrial Average was nearly flat. The two most important earnings reports after Thursday’s close were Western Digital and Bloom Energy, CNBC’s Investing Club said, with Western Digital offering insight into storage demand and shortages for AI data centers and Bloom Energy providing a window into data-center power infrastructure investment.